SPENDING IT; For Navajos, Charity Begins at the Post Office

ON the nearby Navajo Indian Reservation, the Southwest Indian Foundation blends the determination of the Roman Catholic missionaries who have been active in the region for decades with the New West chic of trendy catalogues.

But this is no regular mail-order operation. In addition to selling merchandise nationwide, the foundation provides jobs for as many as 60 people during the peak holiday season and sponsors social services on the reservation -- an expanse as large as West Virginia known as the Big Rez.

The services include installing new coal-fired stoves in homes that lack safe heating, providing emergency assistance and food baskets to needy families and supporting alcoholism treatment centers, schools and shelters for battered women.

The Big Rez, in fact, is among the poorest communities in the United States. But it is the 64-page direct-mail catalogue, which sells turquoise and silver Indian jewelry, Navajo rugs, kachina dolls and clothing, that most of the outside world sees.

The foundation competes with Arizona Highways, Simply Southwest and Sundance, among others, for home shoppers who are seeking Southwestern fashions. But when someone buys a $19 turquoise tie-tack or a $295 squash-blossom necklace from its catalogue, 65 percent of the price is a tax-deductible contribution.

The other 35 percent goes to cover costs, including paying the local artisans who make the products. Customers can add tax-deductible donations, and about half of them do so. The appeal has transformed the once-obscure Catholic charity into a $10 million-a-year operation.

''We would not be able to do the amount of charitable work we do if it were not for the business,'' said William McCarthy, executive director of the foundation.

THE mingling of the commercial and the charitable is among the most visible tensions in the world of philanthropy. The practice is almost always controversial because business operations tend to take on a life of their own.

The foundation enjoys a sterling reputation on the Big Rez. ''When we're not able to find resources to help our clients and we've exhausted our services, they help our clients in any way they can,'' said Lucinda Waseta, a supervisory social worker on the reservation.

There is also an appreciation for the business side. ''That's a project that's generating jobs and revenues for our people,'' said Ferdinand Notah, executive director of the Division of Economic Development for the Navajo Nation. The foundation has 45 full-time employees, most of them tribal members; in the busy holiday selling season, the staff grows.

It also sponsors economic development by supporting small family-run handicraft enterprises, Mr. Notah said. ''The families that are participating with or are employed by the Southwest Indian Foundation are enjoying a livelihood and are contributing to the local economy.''

It is hard to come up with reliable economic statistics for the remote reservation communities that are home to about 175,000 Navajos. According to Mr. Notah's office, about 50,000 Navajos are counted among the active labor force, but about 40 percent are unemployed.

The annual per capita income on the reservation is estimated at less than $7,000. But Mr. Notah said that doesn't include a thriving second economy -- production of arts and crafts valued at up to $20 million or people who work in jobs outside the reservation, including at the Southwest Indian Foundation.

THE foundation, meanwhile, has invested $300,000 in a renovated railroad station in the center of town, last summer opening a gift store, a cafe, an art gallery and a crafts museum.

Some outsiders, though, have cast a critical eye, questioning whether the foundation is a legitimate charity or a business hiding behind its nonprofit status.

The American Institute of Philanthropy, a watchdog organization in Bethesda, Md., gave the foundation a grade of ''F'' in its latest charity rating guide. Daniel Borochoff, president of the institute, called the foundation ''a crafty project'' in the institute's newsletter.

''Is it an employment project or just clever marketing?'' Mr. Borochoff asked.

He added that the catalogue ''paints a glowing picture of the charity. However, that glow fades quickly when one tries to review how the Southwest Indian Foundation is actually spending its money.''

Mr. Borochoff said the foundation had not responded to repeated requests for detailed financial statements. The one-page statement of accountability that the foundation sends to those requesting it does not provide enough information for a good analysis, he said, and it lists the cost of buying and selling jewelry as an ''employment project'' under ''program expenditures.''

Mr. Borochoff contended that the jewelry expenses should be listed as ''costs of goods sold'' and be deducted from net revenue, rather than listed under charitable expenses. And in fact, that is how the jewelry business is treated in the forms that the foundation must file with the Internal Revenue Service to report ''unrelated trade or business income.''

How the jewelry expenses are accounted for, the foundation says, goes to the heart of its mission: to provide employment for native artisans. ''This is a philanthropic charity, but at the same time, there is a business element that drives the energy,'' Mr. McCarthy said. ''The amount of money that's being infused into our economy and the reservation economy in direct cash to artists and artisans is significant.''

In its 1997 financial statement, the foundation reported spending $5.3 million on ''program services,'' including only $1.8 million for charitable programs.

Indeed, the remaining $3.5 million was attributed to its employment project, that is, the catalogue: $2.3 million for buying jewelry and crafts from local artisans and $1.2 million for costs attributed to managing a business that sold some 250,000 pieces by artisans from 16 different tribes last year.

THE foundation spent $3.6 million on ''supporting services'' -- fund-raising, management and overhead. Its payroll last year was $1 million. The foundation says its spending on its catalogue has helped the foundation's revenues grow from $2.2 million in 1987 to $10.4 million last year.

In the last decade, the foundation says, its income from jewelry sales shot up more than tenfold, and its total revenue rose more than fourfold. Spending on program services has risen threefold, but spending on charitable programs -- other than the jewelry employment project -- has increased only 32 percent.

Still, Mr. McCarthy said that each year the foundation has had more money to spend on social services and that its base of donors and buyers had grown from around 50,000 in 1987 to about 80,000 last year.

''You have to spend money to make money, and if you don't cultivate new donors, you die,'' he said.

The ratio of revenues to expenditures is within the guidelines of the Council of Better Business Bureaus, which recommends that a charity's total fund-raising and administrative costs not exceed 50 percent of total income.

''I don't see anything of particular concern,'' said Bennett Weiner, director of the council's philanthropic advisory services, which is analyzing the statements.

Other experts note that customary guidelines don't always assess the impact of charities like the foundation.

''A lot of nonprofits are hybrids,'' said Ann Kaplan, research director of the American Association of Fund-Raising Counsel. ''To me, this looks like a good organization. They're not making a huge profit on selling jewelry. They're using that as a way to reach out to other people.''

The Southwest Indian Foundation occupies an old two-story brick building in downtown Gallup, a dusty windblown strip of a town, with service stations, motels and Indian jewelry and curio shops strung along the old Route 66.

Staff members, mostly people from the reservation, work in a half-dozen cramped rooms, taking orders on the telephone, processing thick bundles of mail orders and contributions, entering customer information into computer files and sending out merchandise and thank-you letters.

The rooms are stuffed with boxes, bubble packaging and shelves with more than 300 items of jewelry, pottery, clothing, books and compact disks.

The foundation was started in 1968 by the Rev. Dunstan Schmidlin, a Roman Catholic parish priest who raised money to build bridges and dig wells in remote villages on the Big Rez and to open shelters in Gallup to keep homeless alcoholics from dying of exposure.

In 1988, the foundation board hired Mr. McCarthy, who switched the organization to a fast track.

He decided that the foundation's mission could appeal to a much wider audience than a traditional Catholic base. ''We have all this beautiful jewelry around,'' Mr. McCarthy said. ''I thought, 'Why can't we sell it by the dozens?' My dream was to create a jobs program that could serve as a direct-mail piece and get out information on our other projects.''

Like other sophisticated direct-mail operations, the foundation keeps detailed records of each donor's history of purchases and contributions. Both the catalogue and the fund-raising appeals feature stories about the people who benefit from the foundation's work. ''People have a need to be part of philanthropy,'' said Mr. McCarthy. ''We try to put a human face on it.''

The foundation works with a few individual artists, though much of the merchandise comes from traders and wholesalers.

''Our jewelry is mass-produced but it's handmade,'' said Tom Elefson, the catalogue director. ''The artists who make one-of-a-kind pieces go to Santa Fe. The people we work with are not the great artists. They are the blue-collar journeymen who desperately need the money. If they get an order for 300 pieces of jewelry, they're thrilled.''

In nearby Milan, 30 Navajo women work in a small factory that churns out as many as 1,000 kachina dolls -- colorful costumed dance dolls representing sacred spirits -- a week in peak preholiday season. A third of those dolls are sold through the foundation's catalogue.

Julia Loley, 35 and a mother of four, makes as much as $60 a day decorating dolls that sell for as much as $169 in the catalogue. Most of what the foundation calls its employment program -- the money it spends on jewelry and crafts -- involves this kind of trickle-down economics.

The foundation works directly with some suppliers, even providing seed money for start-ups.

AT the Rehoboth McKinley Christian Hospital in Gallup, 15 alcoholism-rehabilitation patients make pottery for the catalogue. They are paid minimum wage in a program intended to help them learn work skills and move on to other jobs. The foundation bought the kiln and molds to start the operation and buys all the candleholders, cups and wedding vases that the patients make.

''It's keeping me away from doing nothing and being out of a job, which might lead me back to drinking,'' said Conrad Thomas. Mr. Thomas, 36, paints geometric designs of his own invention on traditional Navajo vases, which sell for $69 each in the catalogue.

He is attending college part-time and works a weekend job as a nurse assistant, but keeps up his pottery painting.

''For a lot of people, it's just a start,'' said Petra Reed, coordinator of the ceramic workshop. ''They will go on to school or find another job or go back to a job after showing their bosses that they're ready.''

Ms. Reed, 32, was herself living on the streets and in and out of alcoholism programs before enrolling at Rehoboth McKinley. Now she has her own home and her children are living with her again. ''Everything,'' she said, ''has changed.''